There are advantages and disadvantages to both first-mover and late-mover positions in the development of a new product. The first mover can "capture market share much more easily without having to worry about rivals trying to capture the same customers" and will already be familiar to the consumer and an established brand with operational distribution systems when rivals show up on the scene ("First-Mover Advantage," 2009). On the other hand, a late mover can gain an advantage even greater than the first-mover advantage. Whereas the first mover must take all the risk and spend the extra capital needed to develop a new product or technology, the late mover can step in after all the groundwork has been done at far less cost and risk. Thus, neither the first mover nor the late mover is guaranteed an advantage or a lack thereof; either position must be leveraged properly to provide an advantage.
Empirical data indicates that first movers "enjoy higher market share derived from substantial and enduring sales advantages" and Gal-Or (1985) identified an observable decrease in market share related to a firm's relative degree of "lateness of entry to the market" (Mellahi & Johnson, 2000, p. 445). Lieberman and Montgomery (1988) saw first-mover advantage as an "environmental change" that "sets up an initial asymmetry that...enables [the pioneering firm] to reap abnormal profits derived from the firm's competitive head start over rivals" (Mellahi & Johnson, 2000, p. 445). Makadok (1998) made a study of first-mover and early-mover advantage in the money market industry and found that first- and early-movers "enjoyed both a highly sustainable pricing advantage and moderately sustainable market share advantage" (Mellahi & Johnson, 2000, p. 446).
Despite these documented and attractive first-mover advantages, first movers do not always gain an advantage. As Suarez and Lanzolla (2005) point out, two factors can aff...